Attorney says Spirit of Knowledge was caught in fraud scheme

WORCESTER — The small charter school that collapsed last week amid a cascade of financial and organizational problems had long struggled with a deadly hole in its budget.

Three years ago, the Spirit of Knowledge school's founder and former chairman of its board of trustees handed over $185,000 to a father-and-son real estate development team as a down payment on a lease for new quarters in an up-and-coming industrial district.

The century-old building at 35 Arctic St. that was intended for the school, now owned by Framingham developer Ding On "Tony" Kwan, was never renovated by the company the school gave the money to, though Mr. Kwan is now moving forward to rehab the building for residential units.

The school, and the taxpayers who funded it, never saw a penny of its money again, even though the school won a court judgment and lien against Columbus Realty LLC, the now defunct company run by Colombian immigrant Francisco Escobar and his son, Edwin Escobar.

The company lost the building to foreclosure. The school consummated the lease agreement without the protection of an escrow account and had no practical recourse to recoup money that some school officials said could have helped ensure the school's survival.

Court papers also do not show that lawyers drew up the agreement, which could have offered more protection for the school.

"If we had that money, we would have had a building, and that would have resulted in a much different course of events," said Barrington Henry, a longtime trustee who became chairman of the charter school's board just before the school surrendered its charter last week.

The school founder, Julia Sigalovsky, and former board chairman, Richard Langevin, did not return calls seeking comment for this story.

As it turns out, the Spirit of Knowledge, which was housed in the same downtown church offices where the elder Escobar is a longtime deacon, was not the only investor or creditor whom the Escobars did not pay back in recent years, according to court documents.

The Escobars, operating under the name Escobar Enterprises, and, in one case, with Edwin Escobar's younger brother, Lawrence Escobar — a former Worcester housing department employee — also never repaid more than $350,000 they received from a number of other lenders and investors, court documents filed by the plaintiffs allege.

According to court records, in recent years, they took $230,000 from a Worcester police officer and his wife, Albert and Mary Cosenza of Paxton; $65,000 from Edwin Escobar's first cousin and Francisco Escobar's nephew, District 2 City Council candidate Jennithan Cortes; $25,000 from a Worcester police sergeant, Miguel Lopez; and $25,000 from the sergeant's brother-in-law, Francis Medina, a physician in Connecticut.

"The entire transaction was a scheme to defraud the plaintiffs," Howard J. Potash, the Worcester lawyer who represented the Cosenzas and Sgt. Lopez and Dr. Medina, wrote in a Feb. 14, 2012, complaint against the Escobars.

In 2008, court filings show the Cosenzas gave the Escobars payments of $150,000 and $80,000 and were promised to receive the principal plus 10 percent interest from the sale of 36 condos to be built at 45 Arctic St., the long brick former industrial building that was also to house the charter school.

In the charter school's lawsuit to attempt to recover its money, lawyer Anatoly Darov of Boston, noted that 45 Arctic St. already had a $3 million-plus mortgage as well as a "mechanic's lien" of $115,000 by an Agawam company that cleaned up part of the building's interior.

"The whole deal made no sense," Mr. Potash said in an interview, referring to the Arctic Street property.

"There's no way they're going to recover the money because the individuals have filed petitions for bankruptcy," Mr. Potash added.

Mr. Potash said the Cosenzas got involved with the deal because Lawrence Escobar — who is only listed as a defendant in Mr. Cortes' suit — lives on the same street in Paxton as the Cosenzas, and apparently told the couple about it.

Lawrence Escobar worked for the city as a $51,000-a-year lead paint removal specialist from 2008 to 2012, when the federal grant that paid for his job changed, according to city records. He did not return several messages left on his home voice mail.

The Escobars, Mr. Potash alleged, "don't pay anybody."

Mr. Lopez and Dr. Medina, whose money was put down toward a rental property at 11 Wilson St., are listed as creditors in Edwin Escobar's 2011 $1.3 million bankruptcy filing.

Edwin Escobar's creditors range from large companies such as Wells Fargo Bank and East-West Federal Bank of California, and ones owed smaller amounts such as the state Department of Revenue and the City of Worcester.

Francisco Escobar also filed for bankruptcy in 2012 with $616,000 in debt, including several large mortgages and $39,834 in unpaid water and sewer bills to the city.

Edwin and Francisco Escobar filed bankruptcies under Chapter 13, a form of debt consolidation that offers faster financial rehabilitation to the filer.

Francisco Escobar did not respond to requests for interviews left at the deacon's office at the Cathedral of St. Paul in downtown Worcester, and at his home near Lake Quinsigamond.

Edwin Escobar declined to answer questions about the charter school deal when a reporter went to his home in Leicester last week. Mr. Escobar, in the midst of installing a roof to a Corinthian column portico at the front door of his family's $367,400 2004 Colonial, shouted: "It's all public record."

"That's all I've got for you," he said, before going inside the house.

Lawrence Escobar, meanwhile, declared a Chapter 7 bankruptcy — in which all debts are erased — in 2012, with about $800,000 in debt.

The suit with which he was involved was brought by the 44-year-old council candidate, Mr. Cortes.

In an interview, Mr. Cortes noted that he did not invest in any real estate project with his uncle and cousin. He said he simply loaned close family members some money.

"What they did with it, I don't know," Mr. Cortes said.

Rather than any intent to defraud, Mr. Cortes attributed his relatives' financial problems to other factors.

"I think their lack of management skills and business savvy probably hurt them in the overall scheme of things," he said.

Meanwhile, while Francisco and Edwin Escobar's bankruptcy petitions are pending, their company, Escobar Enterprises, is still a going concern with properties valued at more than $1 million.

According to city records, Escobar Enterprises owns a multifamily building at 47 Eastern Ave., assessed at $258,000; a multifamily at 10 Normal St. worth $253,500; the six-unit home at 11 Wilson St. valued at $284,400; a multifamily at 8 Seward St. assessed at $186,800; and a three-family at 16 Reservoir St. worth $175,100.

Some of the buildings have had city liens placed against them over the years, and the city has threatened to foreclose several times. But the threatened tax takings have always been withdrawn after the company has come up with overdue property tax payments at the last minute, according to Registry of Deeds records.

As for Francisco Escobar's involvement with the failed charter school and the deal for the building that went bad, some of those involved were surprised that Francisco Escobar, who has long been a Roman Catholic deacon and a notable figure in the Latino immigrant community, had a role.

"In my mind he was someone who was working for the well-being of the community," said Abel Molina, a trustee of the former charter school.

Mr. Molina said he was "shocked" to hear Francisco Escobar was involved.

Contact Shaun Sutner at ssutner@telegram.com. Follow him on Twitter @ssutner.